2020 (3) TMI 895 - AAR - GST

GST: Works contract for railways installation taxed under Notification No. 11/2017.

In Re: M/s. ABB India Ltd.

The Applicant's composite supply of works contract for the erection, commissioning, and installation of original work pertaining to railways, including ... Works contract - composite supply or not - supply to railways - supply involves designing, engineering, manufacturing, site installation, cable laying, erection, testing, commissioning etc. - eligibility for GST under Entry 3 (v) (a) of the Rate Notification - HELD THAT:- Erection and commissioning of SCADA System involves attaching cables and other electrical equipment to the earth with no intention of removing or shifting them in foreseeable future. Moreover, the parts are so interlinked to constitute a functioning SCADA System that none can be moved separately or without causing substantial damage to the goods attached to earth. The moveable character of the goods like cables and other equipment, therefore, becomes extinct. The Applicant’s supply thus amounts to erection and commissioning of an immovable property involving transfer of property in goods in its execution and, therefore, works contract within the meaning of section 2 (119) of the GST Act. Whether the Applicant’s supply is ‘original work’ within the meaning of clause 2 (zs) of Notification No. 12/2017- Central Tax (Rate) dated 28/06/2017, as amended? - HELD THAT:- The Applicant’s supply is not in the nature of repair and maintenance of an existing structure, but a new construction. It involves installation, erection and commissioning of a network of interlinked equipment and structures attached to earth. It is, therefore, ‘original work’ within the meaning of clause 2 (zs) of Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017, as amended. Whether supply to RVNL qualifies as a supply pertaining to railways, including monorail and metro? - HELD THAT:- SCADA, in the context of the Applicant’s supply to RVNL, is the system that controls and monitors the electrical network of the metro, enabling the operator to issue suitable commands to be followed in the operation of the metro. Using the SCADA interface, the operator sends instructions to the Remote Terminal Unit, which accordingly controls the signals, lights and other electrical equipment of the metro. It is, therefore, a power supply and distribution network installed for the purpose of the operation of the metro. It, therefore, is a supply pertaining to railways, including metro, as defined under section 2 (31) (c) of the Railways Act, 1989. Issues Involved:1. Admissibility of the Application2. Nature and classification of the supply3. Definition and scope of 'immovable property'4. Classification of the supply as 'original work'5. Applicability of the supply to 'railways' including metroIssue-wise Detailed Analysis:1. Admissibility of the Application:1.1 The Applicant is engaged in providing technological and system solutions and has been awarded a contract by Rail Vikas Nigam Ltd (RVNL) for the extension of SCADA for Noapara - Dakshineswar Metro Corridor. The Applicant seeks a ruling on whether Entry 3(v) of Notification No. 11/2017 - Central Tax (Rate) dated 28/06/2017 is applicable for its supply to RVNL.1.2 The Applicant declares that the issue is not pending nor decided in any proceedings under any provisions of the GST Act. The officer concerned from the Revenue raised no objection to the admissibility of the Application.1.3 The Application is, therefore, admitted.2. Nature and Classification of the Supply:2.1 SCADA controls and monitors the electrical network of the metro system and provides updated data in graphical and other forms of analysis. It allows the operator to issue commands to be followed in the operation of the metro.2.2 The contract involves supply, erection, and commissioning of various equipment and systems, including RTUs, control cables, UPS and batteries, slave clocks, software modifications, system checks, testing, commissioning, and LCD screens.2.3 The supply involves designing, engineering, manufacturing, site installation, cable laying, erection, testing, and commissioning, making it a composite supply of goods and services.2.4 The composite supply amounts to the erection and commissioning of an immovable property and is classifiable as a works contract under section 2(119) of the GST Act.2.5 The works contract is considered 'original work' within the meaning of clause 2 (zs) (ii) of Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017.2.6 The supply qualifies as a supply to railways and is eligible for GST under Entry 3 (v) (a) of the Rate Notification.3. Definition and Scope of 'Immovable Property':3.1 According to Serial No. 3 (v) (a) of the Rate Notification, the composite supply of works contract supplied by way of construction, erection, commissioning, or installation of original works pertaining to railways, including metro, is taxable at 12%.3.2 Works contract is defined under section 2(119) of the GST Act as a contract for construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property.3.3 The contract involves a composite supply of goods and services, which will be called works contract if it amounts to the erection and commissioning of an immovable property.3.4 'Immovable property' is not defined under the GST Act, but the term 'goods' is defined under Section 2(52) of the GST Act. Property other than goods, money, and securities is considered 'immovable property' under the GST Act.3.5 Section 3(26) of the General Clauses Act, 1897 defines 'Immovable Property' as including land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth.3.6 The essential character of 'immovable property' is that it is attached to the earth or permanently fastened to anything attached to the earth and not agreed to be severed before supply or under a contract of supply.3.7 The apex court in Triveni Engineering & Industries Ltd and other cases emphasized the intention and factum of fastening to determine whether an article is permanently fastened to anything attached to the earth.3.8 The present context involves attaching cables and other electrical equipment to the earth with no intention of removing or shifting them in the foreseeable future, making the supply an immovable property and a works contract.4. Classification of the Supply as 'Original Work':4.1 Original work, as defined under clause 2 (zs) of Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017, includes new constructions and erection, commissioning, or installation of plant, machinery, or equipment.4.2 The Applicant's supply involves installation, erection, and commissioning of a network of interlinked equipment and structures attached to earth, making it 'original work.'5. Applicability of the Supply to 'Railways' Including Metro:5.1 The term 'railways' is defined under section 2(31) of the Railways Act, 1989, including all electric traction equipment, power supply and distribution installations used for the purpose of, or in connection with, a railway.5.2 SCADA controls and monitors the electrical network of the metro, making it a power supply and distribution network installed for the operation of the metro.5.3 The supply pertains to railways, including the metro, as defined under section 2 (31) (c) of the Railways Act, 1989.RULING:The Applicant is making a composite supply of works contract taxable under Entry No. 3 (v) (a) of Notification No. 11/2017 - Central Tax (Rate) dated 28/06/2017, being erection, commissioning, and installation of original work pertaining to railways, including metro. This Ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.